Accountant Ethical Responsibility - Research Paper Example

Accountant Responsibility An accountant’s ethical responsibility depends on the people who rely on him/her. An accountant has a responsibility to the creditors, investors, honesty of the financial markets, outside regulator agents, and company’s management (Beardslee, 2009). An accountant has a responsible for the soundness of the financial report he/she works on. He/she must conduct his/her obligations in accordance to all applicable standards, laws, and principles. The accountant’s responsibility points out the party an accountant is offering his/her services (Cashell & Fuerman, 1995). Accountant responsibility also applies to independent accountants. The obligation to uphold standards, laws, and principles of accounting is owed to creditors, stockholders, governments, and companies that hired an accountant. Despite, the demands of the accountant responsibility, there are complaints brought against accounting firms or accountants. An accountant like any member of the firm should strive to achieve the vision of the firm. Responsibilities and Duties of an Accountant Responsibilities to a Company An accountant has various clients (Bryan, 1965). A company, an individual, or government can hire him/her. All these clients require different services from an accountant. However, he has equal responsibilities to all of them. For instance, an accountant has various duties to the company, which consequently lead to the need for, certain responsibilities. An accountant has to ensure that he/she acts professionally, because he/she is exposed to crucial information, which can harm a client in case; it is not handled well. A company hires an accountant to conduct bookkeeping and accounting transactions tasks. The company expects the accountant will add value to their company in his duties. The specific duties of an accountant depend on the size of the company and industry. The obligations of bookkeeper can merge with those of an accounting clerk. There are various duties for an accountant. An accountant maintains track of a firm's money. He/she ensures that the company has money for operations. He/she ensure that all the money invested into a company is accounted. An accountant prepares profit and loss statements and cost and closings account reports of every monthly. He/she bring together and analyze the financial information to create entries to accounts like document business transactions and general ledger accounts. He/she also creates, maintains, and coordinates the execution of accounting control and accounting procedures. Review and analyze expenditures and budgets for private funding, grants, and contracts. An accountant reviews and monitors accounting and other financial related reports to ensure completeness and accuracy. He/she reviews and prepares budget, expense, revenue, invoice, payroll entries, and any other accounting document. An accountant analyzes expenditure and revenue trends and makes appropriate recommendations. In addition, an accountant solves accounting discrepancies and explains accounting policies and billing invoices to vendors, clients, and staffs. As portrayed by these duties, which the account has in the company, an accountant is exposed to important financial. The information is harmful if it gets into contact with the wrong person. For instance, a competitor can manipulate the information to its advantage in case it acquires the information. Therefore, an accountant has various responsibilities. They are confidentiality and ethics. On the side of the duties, an accountant has the responsibility for consultation and advice and Record Keeping. Confidentiality An accountant has the responsibility to ensure the safety of financial information. He/she ought not to share the information to the third parties unless the company he/she is working for ask him/her to do so. Financial information is confidential information. Private and business clients do not appreciate sharing of internal information with other parties without their awareness. Information should not also be shared within the company (Trakman & Trainor, 2005). An accountant should always know the people he/she can communicate financial information. The AICPA , Rule 301 in the Professional Conduct code, requires every accountant to be confidential. Ethics Accountants should be trustworthy and honest. An accountant that is not honest and cannot be trusted can jeopardize a company. Ethical accountants adhere to acceptable principles. They should ensure that they are trustworthy whether they are developing private or public reports. Use of professional code of conduct should be a normal practice as dishonesty is harmful to the client (The cpa and federal government--opportunities and responsibilities, 1971). As mentioned earlier, an accountant has the function of explaining financial information to a company. Therefore, in case he/she gives wrong information, a company can plan and effect ineffective plans or projects. An accountant should thus ensure he/she is honest in all his/her actions. He/she should practice transparency in bookkeeping so that auditors can evaluate transactions easily. An unscrupulous accountant uses his/her position to steal or embezzle funds from a client. Record Keeping As discussed earlier, an accountant has to up-to-date the financial records. An accountant Record keeps records updated, ensuring timely bank deposits, making sure that payroll is given out on time, and adjusting ledgers. An accountant who keeps records of financial transactions has to ensure that the cash flow reports of clients are up to date. Some clients may require daily or weekly information on expense information, income, and bank balance information (Knipe & Bitter, 2011). Consultation and Advice Accountants usually provide evaluation of product sales results, market trends, equipments purchases, real estate information, or investments. An accountant should provide detailed information to a client even when he/she lacks a definite opinion (Causey &McNair, 1990). Accountants ought to provide information to provide detailed analysis based on facts. Any advice given to the client should be based on knowledge and expertise. For instance, when providing and opinion affecting taxes, an accountant should ensure that he/she based his/her advice on knowledge and expertise of tax laws. Liability to Third Part A third party is a person or a company relying indirectly on audit work of an accountant. An accountant responsibility or liability to a third party is allowed with greater uncertainties. Greater chance for the availability of an accountant’s responsibility to a third party exists under the accountant-client relationship. Distressed third parties have usually sought liability of an accountant for issues of deceit and negligent. However, law limits accountant’s liability for negligence. However, the law emphasizes the exposure of an accountant to a third party on reasons of misrepresentation, deceit, and fraud. Nonetheless, the law of fraud is usually connected with the law of negligence. Different state legislation imposes different degrees of third party liability on an accountant. An accountant’s liability for usual negligence in practice of audit of client’s financial report is confined to the client. An accountant is answerable to his/her client for negligence and fraud. However, an accountant is liable to a third party who he/she knew or ought to have known relied on the audit. The North Carolina’s Supreme Court gave three reasons that make an accountant liable to a third party. According to the Supreme Court, an accountant is either is liable either when, the third party rightly relied on the information for its transaction. An accountant is also liable when the accountant knew that a third party relied on his /her audit. Furthermore, an accountant is liable if he/she was aware that the client he/she is working for intended to share the information with a third party (Francis & Michas, 2013). In the case of ordinary negligence, an accountant is not liable to a third party. Misrepresentation matters in negligent. An accountant liability arises when he/she understands the existence substantial justification of the reliance on the audit by a third party. In the existence of intentional misrepresentation, a third party is justified to request for accountant’s liability. Liability to a Government An accountant is also responsible to the government. He/she is expected to be honest and trustworthy. As mentioned earlier, an accountant has a duty to analyze and evaluate the financial reports of a client. In this duty, the government expects an accountant to be honest on financial reports as they would affect the eventual taxation of the company. An accountant has the ethical duty to ensure that all issues about tax are right. He/ she is expected to advice the clients concerning any mistake in calculation of taxes. An accountant ought to advice the client to correct any taxation error. He/she should prepare an amended return and advice the clients to submit it. Mistake in the calculation of tax returns are usually associated with timing, or due to issues of deductivity, ecrudability, or includability (Morse, 1978). Professional accountants have to act always with a great lever of care, diligence, and skills. Practitioners should undertake their tasks with the goal of avoiding any error. A tax preparer can be judged in case of malpractice in tax preparation. An accountant who cause breaches his/her duty and thus causing his client to suffer an injury can be liable for the mistake committed. A tax practitioner can alleviate liability exposure to a mistake by taking corrective actions. Contribution of the mistake by a client reduces or eliminates a professional exposure of a tax practitioner (Cpa's duties, 2011). Breach of Responsibilities Breach of Confidentiality There are several whistleblowers in the accounting profession. In 2012, Dodd-Frank processed over 3000 tips of financial fraudulence in 2012. In the total, 15.5% offered fraud while 15.2% using manipulation. Whistle blowing has been increasing despite the limited accountant-client privileges. In 2013, S.L Green Reality terminated the accounting services of Spinner after he made open of the financial irregularities in the company. Spinner was an expert fraud examiner and internal auditor working under David Landau and Associates. The termination of Spinners services at S.L Green Reality was prompted by his violation of the principle of confidentiality and acting as a whistle blower. Spinner broke the AICPA, Rule 301 in the Professional Conduct code, which required him to be confidential. The law requires accountants to keep the financial information of a client a secret. Even the Sarbanes–Oxley Act of 2002, gave him some protection, accountant-client privileges are limited in U.S, and thus, confidentiality is mainly adopted over whistle blowing. Negligence In 2001, Enron Corporation, an America commodities, services, and energy company became bankrupt. The bankruptcy of Enron Corporation was prompted by mistake of Arthur Andersen L.L.P, the firm’s accounting firm. Arthur Andersen together with the executives of Enron Corporation planned secretly to hide untenable and implausible financial condition of the company. After the fall of the company, Andersen was forced to pay 217 million U.S dollars as settlement suit. Andersen was liable to the mistake as it neglected other third parties like investors. It did not ensure it protect the company from failure. The company breached the Auditors’ common law liability to third parties. The auditing firm did not consider the negative impacts of its action on the owners, investors, customers, and other. Taxation issue Jerry Clarj Equipment, Plaintiff- v.Roger Hibbits In 1988, Jerry Clark Equipment sued Roger Hibbitts, its bookkeeper of negligent in his performance of accounting and tax preparation. Roger Hibbits failure to offer accounting services to the plaintiff. He failed to create income tax returns of the company for three years. In his trial, Hibbits admitted that he did not prepare the income tax returns for the 1985, 1986, and 1987. In the verdict, the jury awarded the plaintiff actual damages that amounted to $18,324.82 and punitive damages that amounted to $18,000. Hibbits failed to follow the requirement of The Internal Revenue Code that require tax practitioners to honest, diligent, and carefully when calculating tax returns. Instead, he did not calculate the tax returns of the firm yet it was his work. He, therefore, risked his client. Because of the failure, he exposed the company to government’s sanctions like actual and punitive damages. Limited Accounting –Client Privilege Accountant-client privilege is a confidentiality privilege existing in America State and federal law. Accountant-client privilege can protect accountant when he/she has broke the confidentiality act. AICPA, Rule 301 requires every accountant to be confidential. However, there are some situations, which require accountants to be open of the financial reports of their clients. For instance, in a position where the client is trying to avoid payment of tax, an accountant needs to share the information with the right institution. However, due to the confidentiality principle, he/she is forced to keep quiet. In such a situation, the report should be made to the right government department. Therefore, accounting-client privileges ought to be improved to allow accountants to have autonomy. Expansion of accounting-client privilege will improve whistle blowing activities. However, whistle-blowing might cause a negative impact to the accounting professions as clients are the hirers of the accounts. The whistle blowing tendency can lead to the reduction of accountant jobs for accountants who engage in whistle-blowing. Nonetheless, it is right than to promote a wrong. Conclusion Accountants’ responsibilities are important. They ensure that an accountant is working within acceptable terms. For instance, the principle of confidentiality ensures that every accountant protects the information that he/she gathers. Protection of financial information from unauthorized persons is important. Apart from the confidentiality principle, an accountant has other responsibilities. For instance, an accountant has the responsibility to avoid neglecting a third party. An accountant’s liability to a third party ensures that the client does not assume giving important information to a third party. However, some accountants have been known to breach their responsibilities. There are several complaints from clients, third parties, and government. Violation of any principle or law in accountancy is harmful to an accountant as they are exposed to legal battles. Therefore, accountants ought to avoid breaching any requirement. However, violation of confidentiality can be necessary at time. It can ensure that a person reports financial scandals. Even though confidentiality is necessary, there is also need for the expansion of accountant-client privilege. References Beardslee, M. (2009). The Corporate Attorney-client Privilege: Third-rate Doctrine for Third-party Consultants. SMU Law Review, 62(2), 727-802. Bryan, L. (1965). Federal financial control: CPA's responsibility. Journal Of Accountancy, 120(4), 28 Cashell, J. D., &Fuerman, R. D. (1995). The CPA's responsibility for client information. CPA Journal, 65(9), 54. Causey, D., & McNair, F. (1990). An analysis of state accountant-client privilege statutes and public policy implications for the accountant-client relationship. American Business Law Journal, 27, 535-563. Cpa's duties toward fraud detection and reporting: taiwan regulations. (2011). Global Journal of Business Research (GJBR), 5(3), 41-54. Francis, J. R., &Michas, P. N. (2013). The Contagion Effect of Low-Quality Audits. Accounting Review, 88(2), 521-552. Knipe, P. J., & Bitter, M. E. (2011). The Central Florida Emphysema Foundation Audit: A Case Study of Personal and Professional Responsibility. Issues In Accounting Education, 26(2), 377-389. Morse Jr., E. H. (1978). Professional accountants in government: roles and dilemmas. Public Administration Review, 38(2), 120-125. The cpa and federal government--opportunities and responsibilities. (1971). Journal of Accountancy, 132(1), 71-72. Trakman, L. E., &Trainor, J. (2005). The Rights and Responsibilities of Auditors to Third Parties: A Call for a Principled Approach. Queen's Law Journal, 31(1), 148-205. Read More